When a company undergoing an acquisition has a unionized workforce, the transaction introduces an additional layer of legal and operational complexity. From the handling of collective bargaining agreements (CBAs) to successor obligations, acquirers must navigate federal labor laws and strategic considerations to avoid costly liabilities and business disruption. Contact us by either using the online form or calling us directly at 414-253-8500 for legal assistance.
Understanding Union Representation and Collective Bargaining Agreements
A key distinction in any transaction involving a unionized business is that the terms of employment for many workers are not governed by at-will employment or standard contracts, but rather by collective bargaining agreements (CBAs) between the employer and a labor union.
What Is a Collective Bargaining Agreement?
A CBA is a legally binding contract that outlines:
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Wages
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Working hours
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Benefits
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Grievance and arbitration procedures
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Termination rules
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Job classifications
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Work rules and conditions
These agreements are protected by the National Labor Relations Act (NLRA) and enforced by the National Labor Relations Board (NLRB). Any attempt to change or disregard these terms in an acquisition could constitute an unfair labor practice.
Asset Sale vs. Stock Sale: Why It Matters
The structure of your acquisition directly affects how union obligations are handled.
Asset Purchase
In an asset sale, the buyer generally has more flexibility:
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The buyer may not be required to assume the CBA.
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However, if the buyer is deemed a "successor employer" and hires a majority of the unionized employees in a substantially similar business, the buyer may have a duty to recognize and bargain with the union.
This bargaining obligation can arise even if the buyer does not explicitly assume the CBA.
Stock Purchase or Merger
In a stock sale or statutory merger, the entity remains the same; only ownership changes. In this case:
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The CBA automatically continues post-acquisition.
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The buyer assumes all existing labor obligations, including union recognition and contract terms.
Due diligence is critical to uncover:
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Whether the current CBA includes successorship clauses
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Union recognition provisions
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Obligations triggered by change in control
Successor Employer Doctrine
Under federal law, a company that acquires a unionized business may be considered a "successor employer" even if it does not expressly agree to assume the CBA.
Factors That May Trigger Successor Status
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Continuing similar operations
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Retaining a majority of the seller's unionized workforce
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Maintaining the same business location, equipment, or processes
A successor employer must recognize and bargain with the union but may not be bound by the substantive terms of the prior CBA-unless it voluntarily assumes those terms or takes actions that imply assumption (e.g., continuing payroll practices without modification).
Duty to Bargain and the Burns Rule
The landmark Supreme Court case NLRB v. Burns Security Services established that a successor employer may have to bargain with the union before setting initial terms of employment, especially if the new employer chooses to retain a unionized workforce without clear disclaimers or bargaining efforts.
Failing to bargain in good faith could lead to:
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NLRB complaints
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Mandatory reinstatement of workers
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Back pay awards
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Enforcement of previous CBA terms
WARN Act Implications for Unionized Transactions
Acquirers must also assess compliance with the Worker Adjustment and Retraining Notification (WARN) Act, which mandates advance notice for:
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Plant closings
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Mass layoffs
In unionized workplaces, the employer must notify the union representative, not just the individual employees. Failure to give proper notice can lead to substantial penalties.
Successorship Clauses in CBAs
Some CBAs contain successorship clauses, which require any purchaser of the business to:
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Assume the current CBA
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Retain union-represented employees
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Provide notice of sale to the union
While these clauses are not always enforceable against third-party buyers, they can:
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Influence the transaction terms
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Trigger union legal action if ignored
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Require buyer and seller coordination
Due diligence should identify and analyze any successorship language in existing CBAs to evaluate potential risks.
Due Diligence Considerations in Unionized Acquisitions
Proper due diligence is essential when acquiring a company with a unionized workforce. Labor-related liabilities can be both legal and financial, with long-term implications for operations.
Key Areas of Due Diligence:
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Review of All CBAs
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Identify duration, expiration dates, and mandatory negotiation periods
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Understand seniority, termination, grievance, and wage provisions
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Union Relationships and History
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Determine the union's relationship with current management
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Review any history of strikes, unfair labor practice charges, or NLRB complaints
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Pending or Threatened Labor Litigation
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Unresolved grievances or arbitrations
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Claims of discrimination or retaliation involving union activity
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Employee Classification
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Ensure all workers are properly classified (union vs. non-union)
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Misclassification can lead to additional liability and bargaining obligations
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Pension and Benefit Obligations
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Multiemployer pension plans (MEPPs) may create withdrawal liability
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Understand retiree healthcare commitments or other legacy costs
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Employment Policies and Work Rules
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Identify conflicts between internal HR policies and the CBA
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By conducting a thorough labor and employment audit, buyers can plan for integration, cost management, and future bargaining strategies.
Multiemployer Pension Withdrawal Liability
If the unionized workforce participates in a multiemployer pension plan, a buyer may be exposed to significant withdrawal liability under the Employee Retirement Income Security Act (ERISA).
What Is Withdrawal Liability?
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It's the employer's share of the plan's underfunding
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Triggered by a complete or partial withdrawal from the pension plan
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Can apply in an asset sale where the buyer does not assume plan participation
Even if the buyer doesn't continue plan participation, they may be held responsible for withdrawal liability if deemed a successor employer under labor law standards.
Legal counsel is essential to calculate this potential exposure during due diligence and structure the deal accordingly.
Negotiating Labor Provisions in the Purchase Agreement
To manage union-related risks, the purchase agreement should include:
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Representations and warranties regarding labor law compliance
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Disclosure of all CBAs and labor disputes
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Indemnification provisions for labor liabilities (e.g., withdrawal liability, grievances)
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Conditions precedent related to union negotiations or approvals
These clauses protect the buyer and clarify responsibilities between buyer and seller during the transition.
Post-Closing Integration Planning
After closing, companies acquiring a unionized business must prepare to manage labor relations proactively.
Strategic Post-Closing Steps:
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Communicate clearly with employees and union representatives
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Establish a point of contact for labor relations
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Review and potentially renegotiate CBAs at the earliest permitted opportunity
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Align HR policies and employee handbooks with union rules
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Train supervisors and management on union protocols
Failure to integrate labor strategies into broader post-merger planning can lead to disruption, employee dissatisfaction, and legal risk.
Alternatives to Full CBA Assumption
While some acquisitions may result in full assumption of a CBA, there are strategic alternatives to explore:
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Initial terms bargaining: Setting new employment terms (if legally permissible)
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Renegotiation of CBA post-closing
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Partial assumption or modifications, with union consent
These options must be handled carefully to avoid allegations of bad-faith bargaining under the NLRA.
Contact an Attorney for Union Workforce Issues in M&A Transactions
If you're considering acquiring or selling a business with a unionized workforce, it's critical to understand your obligations and risks from the outset. At Heritage Law Office, our attorneys are experienced in employment, labor, and M&A law, and can help guide you through due diligence, negotiation, and post-closing labor strategy.
Contact us today at 414-253-8500 or through our online contact form to schedule a consultation.
Frequently Asked Questions (FAQs)
1. What happens to union contracts when a company is acquired?
When a unionized company is acquired, the treatment of union contracts depends on the structure of the transaction. In a stock sale or merger, union contracts generally continue unchanged. In an asset sale, the buyer may not be obligated to assume the contract, but may still have to recognize and bargain with the union if they hire a majority of the unionized workforce and operate a similar business.
2. Can a buyer refuse to hire unionized employees in an asset purchase?
In limited cases, a buyer in an asset purchase may choose not to hire unionized employees to avoid being classified as a successor employer. However, this strategy can present legal, reputational, and operational risks, and may not prevent the duty to bargain with the union depending on other factors, such as business continuity and workforce makeup.
3. What is a successorship clause in a collective bargaining agreement?
A successorship clause is a provision in a collective bargaining agreement (CBA) that requires a new owner to honor the terms of the existing union contract. While these clauses are not always enforceable against third-party buyers, they can be used by unions to exert pressure or pursue legal action if ignored during the transaction process.
4. What is the successor employer doctrine in labor law?
The successor employer doctrine holds that a buyer may be required to recognize and bargain with a union if the new business is substantially similar to the old one and retains a majority of the unionized workforce. This applies even if the buyer does not expressly assume the CBA, especially in asset purchases.
5. What is withdrawal liability in union acquisitions?
Withdrawal liability arises when an employer exits a multiemployer pension plan that is underfunded. This can occur during the sale of a unionized business, particularly in asset sales where the buyer does not continue participation in the pension plan. The liability can be significant and should be evaluated during due diligence.